On 12 November 2020, the Spanish Supreme Court handed down yet another controversial judgment regarding the Spanish Mortgage Loan Reference Index, known as IRPH. This came as a great surprise to the judiciary, colleagues of the profession and clients, as the judgment turned the European Court of Justice (ECJ)’s ruling regarding the transparency criteria on its head.
Spanish Judges have, for some time, been trying to establish whether or not these types of mortgage clauses (IRPH) are abusive.
Back in December 2017, the Spanish Supreme Court handed down a ruling, Judgement number 669/2017, of 14th December ruling Judgement number 669/2017, December 14th of 2017, establishing that civil courts have no legal authority to control the banking-administrative procedures that set the IRPH index.
The majority of disputes against abusive banking clauses were based on the applicable index. In Spain, the Floor Clause is a capped minimum interest rate which allows Spanish banks to ensure that no matter how much the Euribor drops, the interest payments on a mortgage would always stay the same (or increase). The Floor Clause is always included in mortgage loans tied to IRPH or Euribor, but this cannot be the reason why a clause be considered abusive.
In relation to this, the ECJ clarified last March that clients must be aware of the following:
- Spanish law does not oblige banks to apply the IRPH in their mortgage loans imperatively. The IRPH should not be mandatory in mortgage loan contracts and the bank should not impose it.
- The national courts of a Member State have to verify the transparency and the intelligible language of contractual terms related to the main object of a contract.
- A contractual clause setting a variable interest rate in a mortgage loan has to be formally and grammatically understood for an average consumer, who is well-informed and reasonably observant, to be in a position to understand the specific functioning of the method used for calculating the rate interest. This consumer has to assess, based on clear and comprehensive criteria, the potential meaning and the economic consequences of such a clause and its future financial obligations.
- Regardless of the agreement between the consumer and the bank, if a mortgage loan cannot continue after the IRPH has been declared abusive, the Judge will be able to replace this IRPH with another type of interest to prevent the customer from being exposed to an unfavourable situation.
The latest Supreme Court ruling 595/2020 of 12th November twisted arguments saying that “if a clause is not transparent, this does not mean that the index (IRPH) is abusive, hence void”. Once again, the Spanish Supreme court has proven it is unable to understand the consumer’s perspective at the point of hiring a mortgage loan. They are failing to put into practice the ECJ’s ruling: they are not providing clear information that an average consumer being able to understand regarding which financial products they can choose from.
Fortunately, the particular vote of one of the Magistrates of the Spanish Supreme Court, Francisco Javier Arroyo, voiced the views that many of us have, mirroring what some of the lower courts in Spain also think:
“The damage caused to the consumer is evident, due to the lack of sufficient information which deprived him of comparison with other offers in the market, hence, he was deprived of the exercise of a legitimate right of option, due to the lack of transparency. It is not the Chamber (Spanish Supreme Court) that must assess which index was most interesting to the Claimant, but it was the consumer who had to make that decision with the information that was not provided”.
Following the latest Supreme Court ruling, lower courts such as the First Instance Court 9 Bis of Cordoba handed down judgement in line with the ECJ’s jurisprudence and contrary to the Supreme Court. Cordoba Court decided that the bank did not provide the consumer sufficient information in a precise and clear manner to the client and as such they did not realise the significance of said clause (IRPH); the bank limited this information and merely handed over a summary but failed to provide a detailed explanation as to the conditions.
In my opinion, the point is not whether the Euribor index or the IRPH are valid or not. The essential point is what information was provided to consumers about how the Euribor or IRPH works and if the consumer had the possibility to choose between one or another.
Judges, and in particular the magistrates of the Spanish Supreme Court, have lost their path in accordance with the last ECJ ruling and they are failing to address whether a clause is abusive or not and whether the Euribor, the IRPH and the Multi Currency indexes are valid or not.
The main and only question here is: Are these clauses transparent enough for a lay consumer to understand?
After many years of practice studying these Court rulings, paragraph 225 of the Spanish Supreme Court Judgment dated 9 May 2013 stands out most; this established the basic concepts when considering whether a mortgage clause is abusive:
- Lack of sufficient clear information that the clause itself is a defining element of the main’s object contract.
- The clause (floor clause) is inserted together with the “roof clause” apparently as consideration of the same.
- There is no simulation of different scenarios related to the reasonable functioning and foreseeable rate index at the moment of hiring.
- There is no clear information and comprehensibility about the comparative costs with other loan arrangements that the bank offers (in the case these exist) or warning from the bank that to certain types of clients, these loans are not offered.
- In the case of this bank, these clauses are inserted in between an overwhelming number of data that hides the clause and distracts the attention of the consumer.
All of these conditions shall be put on the table when judging if a clause itself is abusive or not.
If my clients were to stop and read points 3) and 4), the majority of them will say that when dealing with the costs of the loan contract with any bank, this did not warn them that there were other types of loans and these were not offered to them. Furthermore, banks didn’t provide them with sufficient information on how these index rates (IRPH) had behaved in the past or how this index would behave in the foreseeable future.
It is ridiculous the responses that I have to hear sometimes in Court coming from my fellow colleagues defending banks’ IRPH as a “more stable Index” – a euphemism which serves as a spurious intention to hide that the fact that IRPH has consistently been more expensive than the Euribor and that this index has not lowered as much as the Euribor.
Last month’s Spanish Supreme Court ruling also says that they will no longer admit more IRPH appeals. Lately, Courts have been communicating to the parties their decision not to admit appeals, granting a ten-day pleadings period for the parties to argue anything related to the admission.
Believe me when I say that these are in need of further clarification and as such the Spanish Supreme Court will admit new appeals again in the future.
Clients can rest assured of that, otherwise, “we will always have the ECJ’s justice in Brussels”.